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Dividend Investing Stocks (Archived)

MON - Monsanto Co.

Dividend investing is a popular strategy with investors seeking an income stream. Dividend investors can be placed into two broad categories.

  1. The growth approach - buy dividend paying stocks with emphasis on the company's ability to grow and increase its future dividend payments (to maximize the future yield).
  2. The yield approach - buy dividend paying stocks at cheap prices (to maximize the current yield).

Dividend investors using the growth approach tend to look for the same basic growth characteristics as found with growth investing, but the stock must also pay a reasonably reliable dividend.

Dividend investors using the yield approach tend to be more concerned with the stock price and the companies ability and willingness to pay a regular dividend rather than its ability to expand.

Sometimes a company will satisfy the requirements for both approaches.

In the January 2015 issue a fundamental analysis is conducted on a selected sample of stocks. The analysis is based on fundamental data from one year ago. This allows financial students and investors to see how the stock price performed over the next 12 months after the hypothetical purchase.

Monsanto Co.

Monsanto Co. NYSE:MON is a large-cap company in the agricultural industry and its stock trades around $275 million per day. MON is a relatively new company that was founded in 2000 and has consistently paid a dividend.

The key fundamentals for MON are shown below.

Growth fundamentals for MON

YearRevenueEPS ROEDividendBook ValueEmployees
200454500.50 5%0.279.9012600
200562900.46 5%0.3310.5016500
200673401.29 11%0.3912.0017500
200785601.82 13%0.4813.8018800
2008113003.67 22%0.7617.1021700
2009117003.83 21%1.0118.4027000
2010105002.05 11%1.0618.7021400
2011118003.00 14%1.1221.6020600
2012135003.84 17%1.2022.1021500
2013148004.76 20%1.5023.9021900

The fundamental data above shows that MON has broadly increased its revenue, earnings, book value and employees over the last decade. These are the characteristics of an expanding company which indicates that MON is a growth stock that pays a regular dividend. Also the annual dividends have increased considerably over the last decade.

Fundamental Analysis for MON:

The return on equity is good and ranges from 10% to 20% over the years. The profit margin (profit to revenue ratio) is quite good and averages over 10%.

The current ratio (current assets to current liabilities) ranges from 1.5 to 2.3 which indicates that MON has ample working capital.

The debt ratio (long-term debt to tangible assets) averages around 0.7 which means that MON carries a moderate amount of long-term debt. Intangible assets and goodwill are not included in the ratio calculation. The tangible assets are used for the ratio calculation because these are hard physical assets that can be sold off in the event of bankruptcy liquidation whereas intangibles and goodwill cannot be sold.

The total ratio (total liabilities to total assets) averages around 50% which means that MONs total debt is 50% of its total assets.

The earnings growth for the 2013 fiscal year is projected to grow at 9% (based on the five year earnings growth trend). The revenue is projected to grow at 7% (based on the five year revenue growth trend).

The forward PE ratio is around 24 (calculated from the five year earnings growth trend rather than from forecast earnings). The forward PEG is around 2.9.

The current business valuation is around $45 (with a 2.9% ten year Treasury bond yield).

MONs book value is around $24 and if MON does run into financial problems in the future this gives an idea of how far the stock price could drop.

The bankruptcy risk can be calculated using the Z-score. MONs Z-score is 5.8 which means MON is a low bankruptcy risk stock.

The sample analysis uses data that is one year old. The hypothetical purchase date for the stock is 18-Dec-2013 and this allows the reader to see how the stock performed over the next year.

Overall the fundamentals are strong with this large-cap dividend paying stock which has the characteristics of a growth stock as a bonus. Additional information such as consensus forecast earnings, broker recommendations and insider transactions are not considered for this sample analysis. A hypothetical position taken in MON on the 18-Dec-2013 would give a purchase price of around $114.

The stock price performance is shown below in Chart 1. along with the annual earnings year to year growth. The stock chart is adjusted for splits and dividends.

Chart 1. Stock chart with earnings for MON

weekly Chart MON

As shown in Chart 1. above, MON gained around 5% over the next year including dividends. MONs 2013/08 annual earnings increased by 20% over the 2012/08 fiscal year and its 2013/08 dividends were $1.72 which is an increase of 15% over the 2012/08 fiscal year.

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